Inside the turnaround of Machinima

Machinima, a network of gaming video channels, is in an awkward position. It was one of the first big YouTube networks to make headlines, quickly growing to 300 million subscribers and raising almost $50 million in venture backing (including from Google, YouTube’s parent company), valuing it at nearly $200 million in 2012. It remains among YouTube’s top five networks.

Before this year, YouTube networks weren’t a hot investment. “Last year you couldn’t get this category on fire if a nuclear missile hit,” says Machinima CEO Chad Gutstein.

Things have changed. The category has been on fire since Disney announced in March that it would plunk down nearly $1 billion (with earn-outs) for Maker Studios. All eyes are on online video—literally. YouTube is the third-largest website in the world; it has almost as many active users as Facebook.

It feels like just about every one of Machinima’s peers has been acquired since then:

In April, BigFrame was acquired by subsidiary of Dreamworks Animation.

In April, Movieclips sold to Fandango, the movie ticket seller owned by NBCUniversal.

In July, Viral Spiral and Base79 sold to a U.K. video distribution site called Rightster for £54.1 million, or about $84.7 million.

In September, Fullscreen Media sold itself to Otter Media for between $200 million and $300 million.

In November, Stylehaul sold to a European television company for $151 million.

Others, including The Onion, College Humor, and Funny or Die, are for sale.

Interest in gaming video content is particularly hot, given Amazon and Google’s recent bidding war for Twitch, a gaming video streaming site. Amazon won, paying $1.1 billion for the company in August.

In theory, Machinima should be at the top of any dealmaker’s list of acquisition targets. Instead, the company is in the midst of a turnaround. It turns out that there is a cost to being first. The companies that come first make the big, expensive mistakes first. Fast-following competitors can learn from their mistakes and leapfrog the trailblazers. (Call it the Myspace-Facebook problem.)

Machinima certainly made some mistakes. In 2013, some gamers in its network—the ones creating content—complained that its life-long “perpetual” contracts were predatory. There was also controversy over the registration of underage creators and for working with “reply girls” who win clicks by posting seductive videos. CEO Chad Gutstein says Machinima was unfairly punished because it was the first and biggest such network. “You think Machinima was the only company that had perpetual contracts? Every single company in the space had perpetual contracts,” he says. “When you’re doing something new, you’re going to make mistakes. It’s about what you do after it.” Machinima renegotiated its contracts with its creators and terminated its deal with a prominent reply girl.

Gutstein was hired in March to replace founder Allen DeBevoise. Gutstein, who hails from the television industry, is tasked with pulling off the rarest feat in startup-land: reviving a damaged brand. Big companies are hungry to acquire companies like Machinima. Just not Machinima, specifically—at least not right now.

Step one in the turnaround has been to change the message. Machinima is not a multi-channel network, or MCN anymore, Gutstein says. It is an M2M, or “many-to-many” service, referring to the 24,700 people who make content for the Machinima network.

Drawing from Gutstein’s experience as COO of a cable network called Ovation, Machinima is now planning a portion of its programming in advance, in order to make it easier for brands to plan ad campaigns. In a September interview, he described how that might look:

When I got to the company there was no programming calendar. No one could say what are we going in October. What do you think our audience cares about in the last weeks of October? They probably care about Halloween. Who else cares about Halloween? Advertisers. So if we can create fanboy and gamer content in the last two weeks of October that’s thematically programmed around Halloween, and we can get the talent that’s part our of network also doing that, that then we can package that audience to an advertiser. That’s what television does all day long.

The difference, then, between Machinima and another multi-channel network like Maker Studies or Fullscreen is that Machinima is driving the programming strategy for its entire network. As a programmer, Gutstein believes Machinima can transition away from an ad network model—where ad impressions are bought and sold programmatically and where Ebitda margins are in the single digits—to more of a cable network model, where ads are bought and sold in packages and where Ebitda margins are anywhere from 30% to 60%.

Gutstein says he’s gotten positive reactions from advertisers as he pitches Machinima’s 2015 programming. He says advertisers tell him, “‘I don’t want to talk to you guys about $500 million worth of budgets, I want to talk about $5 billion worth of budgets,’ which is TV money that we want to move.”

Gutstein has also tried to shift Machinima’s culture to one focused on collaboration and execution. He has rebuilt the senior team, hiring Daniel Tibbets, an executive with Bunim/Murray Productions, as COO and Tricia White, former vice president of human resources for IHOP and Applebee’s, as chief people officer. “I think some of the execution and cultural issues at the company got masked over by growth, and then when you hit hard times, those chickens come home to roost,” Gutstein says. In November, the company launched a new technology platform for creators to manage their businesses, introduced a new tagline (“Heroes Rise”), and revamped Machinima Prime, a channel for premium content created in-house. (A five-minute video featuring a battle between Darth Vader and Batman garnered more than three million views.)

The network now counts 423 million subscribers across all 34,170 of its channels and boasts more than 71 billion views. It remains among YouTube’s five largest programmers for both reach and engagement. Since Gutstein took over, video views increased from 2.2 billion per month to 3.3 billion last month. Machinima’s monthly audience has increased from 115 million viewers to 150 million.

Machinima is under no pressure to sell now, Gutstein says, even though his peers are quickly being snapped up. He compared the deal environment to the real estate market. “When you have a hot block, the last property to sell usually goes for the highest amount of money. That’s a rule in real estate. I think it holds well in corporate finances, too.”

IAC puts CollegeHumor up for sale amid video deal boom

CollegeHumor, an entertainment website owned by IACIACI, is talking to potential acquirers about sale of the business, according to sources familiar with the situation. IAC, which acquired a majority stake in CollegeHumor eight years ago for a reported $20 million, is hoping to find a buyer that will pay around $100 million.

CollegeHumor would be the third humor site seeking a buyer. Bloomberg previously reported that Funny or Die had hired Moelis & Co. for a sale that could generate between $100 million and $300 million. Bloomberg also reported that The Onion is on the block, with a source telling Fortune that the asking price there is around $100 million.

This past April, Disney acquired a network of YouTube channels called Maker Studios for almost $1 billion, valuing it at a rich multiple of four times its revenue run rate. “All the other incumbent traditional media companies stood up to take notice,” one banker says. “They’re all trying to figure out why Disney did that and what copycat transactions are credible alternatives.”

Disney’s deal for Maker Studios sparked flurry of online video acquisitions: Maker rival Fullscreen Media sold itself to Otter Media, Peter Chernin’s joint venture with AT&T T, for between $200 million and $300 million. Another YouTube network called BigFrame was acquired by subsidiary of Dreamworks Animation DWA. Stylehaul, a fashion and beauty video network, sold to a European television company for $151 million. Up-and-comers, like Tastemade, which LA techies are calling “the next Food Network,” and MiTu, Latino lifestyle network, recently raised eight-figure rounds of venture funding at healthy valuations.

Digital video is having a moment, and as venture investors love to say, “The time to eat the hors d’oevres is when they’re being passed.”

Now the humor sites are hoping to take advantage of the acquisition interest. CollegeHumor, which operates Dorkly.com and WatchLoud.com, has more than eight million YouTube subscribers and calls itself the #1 YouTube comedy channel.

Facebook launches video tool to help friends say ‘thanks’

Facebook is making a familiar phrase said between friends and family a little more high-tech.

The social networking giant on Wednesday introduced “Say Thanks,” a video tool that lets users create “personalized video cards” so they can share kind words with their connections.

“Millions of people use Facebook every day to connect with the people and things that matter to them most,” Cameron Ewing, a Facebook design manager, and Nick Kwiatek, an engineering manager, said in a blog post. “Your friends are at the core of your Facebook experience, and we are always looking for new ways to help you celebrate those friendships.”

To create a video, Facebook says to head to Facebook.com/thanks (although the link was dead at the time of publishing). Users can create a theme for their videos, add a message and edit photos and posts to be displayed in it. The video publishes to both the sender’s timeline as well as the recipient’s.

The “Say Thanks” tool follows the introduction of “A Look Back” video tool unveiled in February. Users of “A Look Back” can insert up to 15 of their most liked photos, statuses and other life events. After the launch, Facebook boasted that over 200 million watched their own video.

This week, Mayer addressed those concerns on Yahoo’s unusually interesting earnings call. Unlike most of Yahoo’s consumer web products, Tumblr is culturally relevant with young people and growing, with 428 million users, a 40% increase over last year. But more importantly to shareholders, Tumblr, which had just $13 million in revenue in 2012 (it was acquired in 2013), is now on track to earn $100 million in ad revenue next year, Mayer said.

More interesting than Tumblr’s surge in revenue and users, though, is what Mayer has planned for the social media site: She wants to make it into a YouTube competitor.

In theory the move makes sense, since Mayer has been eager for a strong video play since taking the job. Yahoo tried to acquire a stake in Dailymotion, a France-based video network, but the deal was blocked by the French government. Yahoo then bid for the popular streaming content service Hulu, but that deal fell through as well. Most recently Yahoo tried to buy Twitch, the gaming video network, which sold to Amazon AMZN for $1.1 billion. Earlier this week, TechCrunch reported that Yahoo was in talks to acquire Brightroll, a video ad network, for $700 million.

Media companies all over see video as the key to finally making real money on the Web. Even though Americans spend more time online than they do watching television, TV is still winning more ad dollars. Television brought in $74.5 billion in ad revenue last year, but digital ads made just $42.8 billion, most of which came from search. Video may change that, though. Google’s YouTube GOOG brought in $5.6 billion in revenue last year, according to eMarketer. Sight, sound, and motion is a more compelling pitch to brands and viewers than a flat banner ad, which gets clicked on almost exclusively by accident, a mere 0.01% of the time.

Still, the practical aspects of turning Tumblr into a video behemoth sound more than a little challenging. Tumblr is a blogging platform. Users scroll through an endless stream of photo and animated gif-heavy posts from the Tumblr accounts they follow. The video activity on Tumblr has historically come from embeds from YouTube and Vimeo, rather than videos that are uploaded directly to Tumblr.

Today that changes as Tumblr unveils a revamped video player. The update includes the auto-playing of videos, looping of video, support for Instagram and Vine videos, and faster buffering. Most creatively, it allows users to “pop out” the video player so they can watch as they continue to scroll through their feeds. It mimics the way many young people actively consume social media or instant messaging while passively watching TV. But in this case, Tumblr keeps its “second screen” experience on Tumblr.

“We’ve known for awhile one of the biggest opportunities to innovate is in video,” Karp says. Video posts are now growing twice as fast as photo posts on Tumblr. Karp believes this is a result of better video cameras in our phones, powerful video editing apps, and the lack of bandwidth constraints for consuming video. “It feels like the tech around video is just in an amazing spot right now,” he said. Indeed, even before this upgrade, Tumblr’s native video player, where users upload videos directly, had become more popular than YouTube on Tumblr.

Seeing Facebook’s success may have inspired Marissa Mayer to look internally for a video play, rather than hunt for acquisitions. Today’s product news, combined with the pressure to monetize Tumblr and justify the acquisition, paints a clearer picture of how Tumblr, future video behemoth, will look.

All of Tumblr’s ads are “native,” meaning brands can post things on Tumblr and pay to promote them in the regular content stream. This avoids the issue of banner ads on mobile, which are too tiny to be effective. Karp says the company is already selling native video ads and likely won’t introduce pre-roll ads like the ones on YouTube.

Karp, who has not always been keen on the idea of advertisers on his platform, has recognized the need to play nice with brands. “Our promise to advertisers is they get to use the full range of creative tools on Tumblr to tell their story, and they’re doing it,” he says.

Unless you’re in the business of video production, you likely haven’t heard of Pond5. The company’s new $61 million Series A round of venture funding, led by Accel Partners with participation from Stripes Group, will likely change that.

Pond5 is a New York-based stock video startup founded in 2006. It has said very little to the media since. But in that time, Pond5 has built itself into a large, thriving, self-sustaining marketplace on $500,000 in seed funding from angel investors. The company now has 70 employees in 18 countries. Its marketplace has around 40,000 creators who have uploaded 2.6 million videos, which Pond5 sells to several hundred thousand buyers. The company’s marketplace is available in seven languages, and it is on track to do $20 million in sales this year, doubling last year’s sales and turning a profit.

Pond5 says its new funds will go toward accelerating growth, including expanding into more languages, expanding its product team, and iterating faster on its product roadmap.

The company differentiates itself from other stock video offerings, such as Shutterstock’s video business, Getty’s video offering, or CorbisMotion, by positioning itself as the most artist-friendly. Pond5 allows artists to price their own footage—they average $45 to $50 per clip—and gives them a 50% split of the profits. (Its competitors offer as little as 15% to 30% in royalties.) Another big differentiator is that Pond5’s videos are all royalty-free, meaning buyers can purchase a clip once and use it for anything they want, saving both parties negotiations required for “managed rights” content.

Pond5 has been adopted by a diverse group of content creators including MTV, BBC, Netflix, the music producer Ryan Lewis (best known for his work with Macklemore), and the ad agency Weiden + Kennedy. There is also a long tail of small- and medium-sized customers, such as church groups, universities, non-profits, and wedding videographers.

Pond5’s path—moving from a bootstrapped existence to taking $61 million in venture capital—is not actually as unique as it seems. Most startups are fueled by venture capital from day one, raising capital every year or so until they go public, which is often effective, even if it means the holdings of the company’s founders and early employees are diluted by the time of the I.P.O.

But another class of startups toils away on next-to-no capital for years and builds a healthy, self-sustaining business that grows typically slower than that of a venture-backed company. These companies often decide to raise capital eventually. When they do, it’s a huge round, such as Github’s $100 million round from Andreessen Horowitz, valuing the company at $750 million after five years of bootstrapping. Likewise, when Imgur raised $40 million from Andreessen Horowitz after five years of bootstrapping, the company was valued at $200 million.

Accel is no stranger to the late-stage Series A deal.The firm led Braintree’s first outside investment round worth $34 million, which came five years after the company was founded. Accel was also the first outside investor in Atlassian, which self-funded its growth for its first eight years. When Squarespace decided to take $38 million in outside funding after six years of bootstrapping, the money came from Accel and Index. Qualtrics raised $70 million in 2012, 10 years after it was founded from—who else?—Accel, alongside Sequoia Capital.

Accel discovered Pond5 while talking to content producers about their favorite resources. The name Pond5 came up repeatedly. John Locke, who led the deal for Accel, says he was impressed by the way Pond5 was competing against big players in the category, such as Shutterstock and Getty, by catering to “emerging creators” with smaller budgets.

“We think the media world is dramatically changing with a new wave of creators putting out great content to the masses,” Locke says. “Major networks and ad agencies don’t have a stranglehold on content or viewers anymore, particularly as it relates to video.” He pointed to the success of online video startups such as YouTube; Netflix NFLX; Maker Studios, a network of online video channels which Disney DIS purchased for $500 million (plus earn-outs); Vice Media, a fast-growing media company worth a reported $2.2 billion; and Vox, a media company in which Accel has invested.

Video creators are passionate about Pond5, Locke says. Many Pond5 users make a full-time living shooting stock video for the site, specializing in niches like Alaskan wildlife, motion graphics, or time-lapse videos, says Tom Bennett, the company’s co-founder and chief executive. “It feels like early Etsy, when we invested in 2008,” Accel’s Locke says. At the time, Etsy drew comparisons to eBay. Now, it’s clear the marketplaces are very different.

Pond5 was doing fine as a bootstrapped company, but the market for online video has been growing faster each year. With sudden, massive war chest, Pond5 can keep pace, if not race ahead. The timing made sense, Bennett says: “The overall market is evolving quickly enough that we weren’t able to do everything we want to do without bringing in additional firepower.”

Note: This post has been updated to correct the amount of seed funding Pond5 had raised from $250,000 to $500,000.

AT&T and DirecTV CEOs: Expect more original programming, no ‘a la carte’ surprises

FORTUNE — The CEOs of AT&T T and DirecTV DTV hailed their $49 billion deal as one that will “redefine the video entertainment industry.” But consumers likely are in store for more of the same trends that are shaping the television landscape today.

AT&T’s Randall Stephenson and DirecTV’s Mike White positioned the transaction, in which AT&T would acquire the satellite TV provider for $95 a share, as good for customers and pledged a series of pro-consumer initiatives, including deploying broadband service in rural areas and guaranteed pricing on stand-alone broadband.

But White (in a joint interview with Stephenson) told Fortune he doesn’t expect the deal will result in any “significant change” in the bundles consumers buy when they sign up for pay-television service. Consumer advocates are pushing for service providers to offer “a la carte” pricing that enables a household to buy only the channels it watches — ESPN, say, but not Lifetime (or vice versa). Existing packaging of big tiers of channels is “driven by the programming contracts, and I don’t anticipate any significant change in the bundling that goes on,” White said, noting that the combined company intends to be flexible in the service bundles of voice, video, broadband, and wireless it offers customers.

But White also noted that the transaction would likely accelerate the combined company’s ability to develop more original programming — adding to a crowded (and beloved) field of high-quality shows now churned out by networks, cable networks, and tech companies such as Netflix NFLX and Amazon AMZN. DirecTV has a small roster of original scripted programs, and AT&T earlier this year announced plans to team up with Peter Chernin’s Chernin Group to acquire and invest in online video programming.

The CEOs’ proactive pro-consumer initiatives are an attempt to head off regulatory objections to the deal. Regulators scuttled AT&T’s effort to acquire rival T-Mobile’s U.S. operations a few years ago. “Mike’s team and my team have done an unbelievable job evaluating regulatory issues,” Stephenson said, noting that in addition to each side seeking opinions from economists and legal teams, he hired a separate law firm to provide an additional assessment.

Stephenson has said the AT&T acquisition of DirecTV isn’t a response to Comcast’s CMCSA pending purchase of Time Warner Cable TWC. But in response to a question about Comcast’s growing size and the criticism lobbed at the Philadelphia-based giant as it has sought to expand, Stephenson told Fortune he has a plan for deflecting such disapproval: “There’s one thing that mitigates that and that’s giving your customers great service and great value.”

Can you make work joyful?

(TheMIX)–For too long, the ruling ideology of too many organizations has been control–controlling people, controlling information, controlling deviations from the norm. Of course, that kind of high fear, low trust culture is exactly the wrong design for unleashing and mobilizing the full potential–the full imagination, initiative, passion—of every single person, every single day.

But what is the right design? What would it take to build an organization that inspires, engages, even elevates people (and produces extraordinary performance in the process)?

For Richard Sheridan and his colleagues at Menlo Innovations, a fast-growing software company based in Ann Arbor, MI, the answer to all of the above is one little word: joy. Yes, joy. As Sheridan puts it, “it’s a concept that has no place in the corporate world. It certainly doesn’t sound profitable.” Yet, “joy is the core belief of our workplace…. It defines what we do and how we do it. It’s the single shared belief of our entire team.”

There is no chain of command at Menlo. There are no bosses, no managers, no secrets, no rules, no walls, and no fear. What they have instead are a series of clever mechanisms and radically practical approaches to cultivating collaboration, collective decision-making, focus, and performance — from working in pairs (and rotating partners on a weekly basis), to a strict (and strictly humane) 40-hour work week, to a peer-led approach to hiring called “Extreme Interviewing,” to a wholly original (and refreshingly analog) paper-based approach to planning and setting priorities, to daily 13-minute all-hands meetings and weekly “show and tell” sessions with customers.

There is so much to unpack when it comes to Menlo’s relentlessly clever and deeply human approach to work. Which is why we’re delighted to be hosting a Maverick Hangout with Menlo Innovations co-founder and CEO Richard Sheridan on Thursday, December 5 at 11am ET. We’ll dive into the principles behind building a joy-based culture, talk about what it means to unleash so much freedom, experimentation, openness and amp up productivity, ingenuity, and alignment at the same time. And we’ll get into the details of Menlo’s redesign of so many core management practices. Hangout participants will get a sneak peek into the themes and insights in Rich’s soon-to-be-published book, Joy, Inc.

Rich will be answering your questions, so please tee them up in the comments section here (and via Twitter during the Hangout #joyinc). In the meantime, be sure to check out Rich’s winning Leaders Everywhere Challenge entry.

And if you’re inspired by the ideas behind Menlo Innovations’ original design for work, share your own story or bold idea in the Digital Freedom Challenge. Learn more here.

Transcript: Elena Kagan at Fortune MPW Summit

U.S. Supreme Court Justice Elena Kagan joined Fortune’s Pattie Sellers on stage at the Most Powerful Women Summit in Washington, DC.

What follows is an unedited transcript:

LEIGH GALLAGHER: Thank you, Nina, and congratulations to all of the mentees. We look forward to welcoming you back on the Summit stage again one day in the future.

We had hoped to hold tonight’s event at the National Portrait Gallery of the Smithsonian. But the government shutdown has altered our plans a little bit. And I have to say that I concur with the sentiment expressed on this stage last night and today that if the U.S. Congress were all female, none of the turmoil would have happened over the past couple weeks, and we would all, in fact, be sitting at the Smithsonian right now. (Laughter.) So let’s just get that out of the way. (Applause.)

Justice Kagan is the fourth woman in history to serve on the U.S. Supreme Court. She clerked for Justice Thurgood Marshall, she was the editor of Harvard Law Review, and she was the first female dean of Harvard University Law School. In 2009, she became the first female solicitor general for the United States and she served until her appointment to the Supreme Court in 2010.

PATTIE SELLERS: And you grew up on the Upper West Side of Manhattan. (Cheers.)

ELENA KAGAN: Right.

PATTIE SELLERS: Yes. 75th and West End.

ELENA KAGAN: 75th and West End.

PATTIE SELLERS: Yeah, fantastic, that’s my neighborhood.

ELENA KAGAN: It’s a very different neighborhood then. You know, it was a little bit more humble.

PATTIE SELLERS: It was.

ELENA KAGAN: Yeah.

PATTIE SELLERS: It was, absolutely.

ELENA KAGAN: Which is — you know, it’s not all that humble now.

PATTIE SELLERS: I moved there in ’84, you left there in —

ELENA KAGAN: I left there in ’77 when I went to college. Everybody thinks of me as a New Yorker, but in fact, I never lived there as an adult. So I grew up there and then left. But it was a great place to grow up, I loved growing up in New York.

PATTIE SELLERS: So what did your parents do?

ELENA KAGAN: My father was a lawyer. He was as much as sort of small-town lawyer as it’s possible to be in New York City. Didn’t work for a big law firm. Sort of worked solo and represented, you know, people doing — wrote people’s wills and he solved their tax problems and he represented a few small businesses.

And then he started doing some real estate law for mostly tenants in New York City as New York City became — in the 1970s, when all the buildings became co-ops, he did a lot of that work. But he did a little bit of everything. And then my mother was an elementary school teacher.

PATTIE SELLERS: And did you acquire a love of the law from your father?

ELENA KAGAN: You know, the truth is that I didn’t think I wanted to be a lawyer. And it was sort of — it didn’t seem all that interesting to me. You know? (Laughter.) I mean now I look back and I think about what he did and I really appreciate it and I see how many people he helped and why he found the job as satisfying as he did, which he did. But at the time, I thought it looked dreadfully dull. (Laughter.)

So my colleague, Justice Sodomayor, and I have talked about this because she’s told this story about how when she was growing up, the first inkling that she had that she might want to be a lawyer came from she would watch Perry Mason on TV. (Laughter.) And for those of you too young to know, you know, Perry Mason was this great trial lawyer and he pulled rabbits out of hats and there were all these great, climactic moments when he solved the case and made it clear who was the liar and who was the truth-teller.

And she watched this on TV and she thought, “I want to do that.” And I said to her, I said, “Boy, I knew that that was not what lawyering was all about.” (Laughter.) Most lawyers in the world, they are not having Perry Mason moments, right?

PATTIE SELLERS: So how did you get into this?

ELENA KAGAN: You know, so I went to law school for every — I became a dean of a law school.

PATTIE SELLERS: You went to Princeton first.

ELENA KAGAN: So, yes. But every dean of a law school will tell you, don’t go to law school if you’re only going because you don’t know what else to do and you want to keep your options open. (Laughter.)

But I went to law school because I didn’t know what else to do and I wanted to keep my options open. (Laughter.)

PATTIE SELLERS: But there’s this story about how you posed for your high school yearbook in a judge’s robe.

ELENA KAGAN: Yeah. Too much is made of that story, you know? (Laughter.)

PATTIE SELLERS: Was that a joke, like, on your father?

ELENA KAGAN: Yeah, you know, we were — it was a picture where we all posed in different costumes.

PATTIE SELLERS: Really?

ELENA KAGAN: And it didn’t really have anything to do with anything.

PATTIE SELLERS: Oh, that’s interesting, because it’s been —

ELENA KAGAN: It’s sort of the foundation myth, right?

PATTIE SELLERS: It is a myth. It’s like she’s wanted to be on the Supreme Court ever since she was in high school.

ELENA KAGAN: Yeah, well, you know, some things people say about you are not true. (Laughter.) I know it will shock you to learn that, but sometimes the press — you know?

PATTIE SELLERS: Yeah, we’re shocked as journalists. You went to an all-girls school. Which —

ELENA KAGAN: In New York City.

PATTIE SELLERS: Yeah, for you was a good experience?

ELENA KAGAN: Yeah, I loved my high school. It was a funny kind of high school. It was a public school, but you had to take a test to get in, it was one of these sort of special public schools. And it was all girls on top of that.

And it was a place called Hunter High School. It’s now co-ed. But then, it was this great academic place. It was really diverse. There were people from all over New York City, all races, all religions, all different income groups, but all smart girls. And it was cool to be a smart girl. (Applause.)

PATTIE SELLERS: That’s great.

ELENA KAGAN: So I look back and I think, you know, that school had a lot to do with who I am and how I grew up and what became important to me.

PATTIE SELLERS: So we have these fantastic high school students in the audience. An we’ve talked with them about what some of these women wanted to be when they were 16 years old. What did you want to be when you were 16?

ELENA KAGAN: I just told you. I didn’t have a clue.

PATTIE SELLERS: You really didn’t have a clue? Okay. (Laughter.)

So you decided to go to law school. And you, at some point, decided that you wanted to dedicate your life to the law.

ELENA KAGAN: That sounds very serious. (Laughter.)

PATTIE SELLERS: Well, tell us. At what point did you imagine that you could actually someday be on the Supreme Court?

ELENA KAGAN: No, I don’t think I ever really did. I mean, because it’s such a fluky, lightning-strike kind of thing. So I don’t think anybody can really say, “I’m thinking I want to be on the Supreme Court.” You know? Because if you do, you’re destined for a lot of heartache, you know? (Laughter.)

PATTIE SELLERS: I would say so, yeah.

ELENA KAGAN: But I did, when I was — I mean, I did have this wonderful experience when I was a young lawyer. I got to clerk on the Supreme Court. And then —

PATTIE SELLERS: Thurgood Marshall.

ELENA KAGAN: Thurgood Marshall. And that was an amazing, amazing year for me. It’s a very heady experience clerking on the Supreme Court. You’ve just graduated from law school, you’re in your 20s, and there you are in this institution that’s making all the important law and deciding all the important cases.

And so for anybody, for any clerk, I think it’s a real learning experience and a wonderful year in their lives. But extra special, I was clerking for Thurgood Marshall near the end of his life, not quite. And this icon of American law, and he was at a point in his life where I think he was looking back a little bit and taking stock.

And so one of the things about clerking with him is we would go into his office every day and we would first talk about the cases and do our work. And then he would start telling stories. And he was the greatest storyteller that I have ever encountered, and he had a life full of stories. Battling segregation, battling the Jim Crow system, encountering all kind of violence and danger in the early years of his career.

And it made you understand what lawyers could do, what law could do. Nobody, I don’t think any of us walked out thinking, “I’m going to be Thurgood Marshall.” You know? Because nobody could be Thurgood Marshall. But it made you think about the value that living a life in the law could have and think about how it is that you could try to have a career in the law where you were doing something meaningful and helping to advance justice.

PATTIE SELLERS: So he kind of hooked you?

ELENA KAGAN: He kind of hooked me.

PATTIE SELLERS: From 2003 to 2009, Elena was the first woman dean of Harvard Law School. And you entered Harvard Law School at a time when it was really dysfunctional, didn’t you?

ELENA KAGAN: You know, it might be that that’s a bit exaggerated. You know, because Harvard Law School is a great institution and it’s always been. So at the time that I came in, there were incredible strengths of the school. But there were also some problems in the way people dealt with each other, in the way they treated students. So, you know, I definitely had things to do there.

PATTIE SELLERS: Well, you got a lot of praise for your management skills there. And, you know, I think most of the Supreme Court justices, I may be wrong about this, but I think most of them don’t have the management experience that Elena does. And I actually did a piece which I dug up in 2010 right after you moved onto the Supreme Court. And, interestingly, we were talking earlier today about our late friend Joy Covey, the former CFO of Amazon who died tragically in September. I talked to Joy back then. You knew Joy at Harvard Law School.

ELENA KAGAN: She was an incredible woman. One of the things when you become a dean, everybody tells you, “Well, but you have to fundraise.” And then it turns out that fundraising is the best part of the job or almost because you meet such incredible people. And I met Joy because she was a very generous donor to Harvard and so interesting and intense.

PATTIE SELLERS: So interesting.

ELENA KAGAN: Just an amazing woman.

PATTIE SELLERS: She dropped out of high school, you know and went on to great things. Anyway, Joy recalled — I remember talking to Joy on the phone about you, and she recalled how Kagan, first woman to head the law school, lifted student morale there. She did her community building via small acts of kindness. Flooding a lawn on campus to create an ice rink, putting out free coffee and bagels in the morning, and redesigning spaces in Harkness Commons, the student center. This is what Joy said about you. These were things that didn’t break the bank, but said to students, “We care about you and your lives.”

ELENA KAGAN: I used to tell people that whatever I did as dean, I could hire tens of faculty, I could revamp the curriculum, I could build buildings, and that I would still be known as the “free coffee” dean. (Laughter.) Because if there was one thing that every student who went through Harvard Law School remembered is that we put out free coffee. You know, students drink a lot of coffee.

So this is one of the parts of my life that you didn’t mention was I worked in the Clinton Administration in the 1990s. I worked for four years in the Clinton White House. And do you remember how everybody said about President Clinton? Well, there were all these small-bore initiatives?

But I was a fan of small-bore initiatives. And I took that lesson from Washington and I said, “We’re going to have some small-bore initiatives.” Things that they don’t break the bank, but they communicate a set of values and they make people feel as though they’re living in an institution that cares about them and cares about their concerns. So that’s what I tried to do on those things. We tried to do a few bigger things, too, but free coffee went a long way. (Laughter.)

PATTIE SELLERS: That’s great. That’s great. Is there any opportunity to affect culture on the Supreme Court, in the Supreme Court?

ELENA KAGAN: That’s a jump of a question, okay. (Laughter.)

PATTIE SELLERS: I think there’s a transition there. (Laughter.)

ELENA KAGAN: Well, the first thing is we have actually a great culture on the Supreme Court. So it was actually not by into an institution and going, “Gosh, this culture has to change.” I mean, quite the opposite. The culture is a really terrific one. And, honestly, going back to how you started, you see some institutions in Washington that don’t work all that well, and the Supreme Court works very well. We’re nine people, we disagree on a lot, sometimes we express our disagreement in fairly powerful and sharp terms, but we all like each other an enormous amount. We all respect each other an enormous amount.

And I think that most of us most of the time, or really all of us most of the time, know how to disagree without being disagreeable. And so I think we believe in the good faith of each other and that doesn’t mean that we’re going to be nine-zero in everything we do. But it means we function really very well as an institution, which I’m proud of, and which is a testament to all my colleagues.

I mean, I’m the newbie. I walked into this institution and I thought, “Wow, this is fantastic.” And it’s especially a testament to the chief justice, who sets the tone.

PATTIE SELLERS: There has been over the years a debate about whether to allow cameras into the court and let people see how the Supreme Court works. And it is an institution that seems to work.

ELENA KAGAN: Yes.

PATTIE SELLERS: So what’s your view of that?

ELENA KAGAN: Well, on the plus side, I think that that would be the plus side is we work well. I think when people come to the court and they watch us, I think that’s a pretty good show.

And it’s not just a show, it’s obviously a bunch of people doing serious business. I think what they would see is nine people who are very prepared, and who really want to get the answer right. Again, often we’re going to disagree about what that means, but if you watch us, I think you’re going to see nine people who are trying really hard to figure out the cases and to figure out the right answer in the cases.

And, you know, I think it would be — the up side is it would be terrific for people to see that and watch that, an institution of their government that’s really working.

You know, the down side is you worry that, well, it’s working now, maybe cameras would change the dynamic. And I think that there is some reason to worry about that. I’m not sure that cameras have had such a great effect on the way Congress does its business. (Laughter.) And, you know, you like to think that you would be impervious to them and nothing in your behavior would change.

But I think it’s a reason for some caution and for a little bit of step-by-step process in terms of opening ourselves up more to the public.

PATTIE SELLERS: When was the first time that you went to the Supreme Court either as a lawyer or as a spectator?

ELENA KAGAN: You know, I’m not sure if I went before I started clerking there. So clerking there.

PATTIE SELLERS: And what year was that?

ELENA KAGAN: That was 1987.

PATTIE SELLERS: Okay, so 25 years ago.

ELENA KAGAN: Almost, right.

PATTIE SELLERS: How has the court changed in those 25 years?

ELENA KAGAN: Well, in some ways, it’s changed not much at all. I mean, it’s an institution that I think because it works has been careful about the way it changes things. And it’s an institution that’s very attached to its traditions and is conservative in how it operates and the way it — there has to be a really good reason to change a way of doing business at the court. And I think that’s because people realize that we’re doing pretty well and if it ain’t broke, don’t fix it.

PATTIE SELLERS: So to the point that the court hasn’t changed very much, you don’t use e-mail there, do you?

ELENA KAGAN: We don’t to each other. You know, I obviously do to my clerks, but the justices themselves do not communicate by email.

PATTIE SELLERS: So how do you communicate?

ELENA KAGAN: Well, we either talk to each other, which is not a bad thing. (Applause.)

PATTIE SELLERS: Not a bad thing.

ELENA KAGAN: Yeah. Or we write memos to each other. And, you know, you have to remember that the court is an institution where we’re not horse trading, we’re not bargaining, we’re reasoning and we’re trying to persuade people. And, often, the best way to do that is by putting things down on paper in a kind of careful and deliberate way and saying, “This is what I think.” And giving people an opportunity to read a memo and to think about it and to reflect on it.

So we do a lot of our communicating by these — it’s sort of 19th century, this very heavy ivory paper, it looks like it came out of the 1800s or something. But it seems to work pretty well. And, you know, when you think about it, how many e-mails have you sent that you wished you could take back, right? (Laughter.)

PATTIE SELLERS: Seriously.

ELENA KAGAN: So we’re careful and deliberative.

PATTIE SELLERS: The theme of the summit this year is Breakthroughs in Leadership. Since you moved into this position three years ago, is there a moment on the court that you personally or you as the court, that you feel most represents that idea of a breakthrough in leadership. Maybe a breakthrough in leadership for America.

ELENA KAGAN: Oh, gosh, you know, no. (Laughter.) Because I really just try to do the work day by day by day. And I know that there are some cases that are incredibly important and others that nobody’s heard about. But for me, I try to give all of them the best, most careful consideration I can. So I would not pick out a particular case or anything like that.

I just sort of try to do the job one case at a time and to try as best I can to get it right each time out.

PATTIE SELLERS: One question, this is my last question: One question that we discussed with these high school students is the idea that —

ELENA KAGAN: They were great, by the way.

PATTIE SELLERS: Yeah.

ELENA KAGAN: I mean, we were watching you guys, where are you? (Applause.)

PATTIE SELLERS: Inspiring. Inspiring.

ELENA KAGAN: We were watching you offstage.

PATTIE SELLERS: You’ll meet some of them tonight.

ELENA KAGAN: Congratulations, lots of luck. You were terrific.

PATTIE SELLERS: You’ll meet some of them at dinner, all of them at dinner.

We were talking about how you don’t have to be good at everything — and this is a point that Warren Buffett — who is in the audience — makes. That you don’t have to know everything and be good at everything. So what are you not great at and what are you really good at? (Laughter.)

ELENA KAGAN: Well, you certainly don’t have to know everything. I mean, I learn new things every day. But what am I not great at? I think, you know, I used to think this when I was dean. The fun part about being dean was that you did lots and lots of different things. It’s actually not true of my job now, but as dean, that you did lots and lots of different things. And the key to being a good dean was that you could them all adequately.

And that’s actually a kind of special talent in and of itself, right? (Laughter.) A certain kind of breadth in your skill set. Even though you weren’t the best at anything, actually. But you weren’t the worst at anything either, you know?

So I used to think that, actually, that I had the capacity to do a lot of different things requiring a lot of different skills at least okay, you know?

But of course, you know, some things better than others. And I don’t know, you know, I really — I think people grow up. There was a lot I learned about how to deal with people during those years, which I really did not know at the beginning. And sometimes I had to learn through pretty serious errors.

So I think it’s funny because people now say, oh, “Elena Kagan, she has good people skills.” But that was definitely not true in large parts of my life, you know? (Laughter.) I had to develop those skills.

PATTIE SELLERS: And if you left these high school girls and these leaders from around the world with any piece of advice about just kind of developing your EQ and developing your people skills, what advice would you give?

ELENA KAGAN: I think to just sort of constantly work on yourself and to realize that you’re going to make mistakes and to try to not make them twice. So to learn from your errors and know that you’re not going to be perfect, but you can get better.

The disruptive world of YouTube

Cat videos and viral hits? No more. Over the past two years, YouTube has undergone a radical transformation. The Google-owned site has emerged as a legitimate platform for professional content creators to communicate with their viewers. A new breed of digital studios like Awesomeness TV, Maker Studios, and Machinima are thriving on YouTube, gathering massive audiences — often bigger than those of popular cable shows — with episodic content from established and up-and-coming creators. The money and deals are pouring in by the tens of millions.

As the Fortune cover story, “How YouTube changes everything” says, YouTube GOOG is not about to kill off television, but it is definitely starting to disrupt mainstream entertainment. “If the first era of video entertainment was network television with a handful of channels and the second wave was cable with hundreds of channels, the web incarnation is about tens of thousands of channels tailored increasingly to niche audiences. In this new world, YouTube is not only the biggest distribution platform but also its organizing form. Think of it as a next-generation Comcast CMCSA, Time Warner Cable TWC, and Cox all rolled into one, but with a slightly different model: an open platform where anyone can put up content, and where YouTube grabs nearly half the ad revenue.”

Yet while Google itself is reaping billions in revenue from YouTube, many content creators are still hoping for better monetization. Television, which is going through its own golden age, with hit shows like Game of Thrones and live sports commanding ever larger checks, still rules. Part of the problem is that advertisers still value a TV viewer more than they do a YouTube viewer. But Google and others are working to change that. Awesomeness TV’s Brain Robbins, an entertainment industry veteran, predicts that there will be a day when an eyeball is and eyeball, no matter the platform. When that happen, the world of YouTube and TV will truly collide.